Competition Can Only Improve India’s Electricity Sector

Location: India

November 11, 2013--India has been reforming regulation of its electricity sector since the early 1990s, and the Electricity Act of 2003 introduced competition to all supply segments —generation, transmission, and distribution. The sector, however, is still subject to anti-competitive political pressure.

On behalf of the Consumer Unity & Trust Society (CUTS),Nathan India evaluated the effectiveness of policies, regulations, laws, and practices in the electricity sector. Findings reported in the National Competition Policy and Economic Growth in India – Electricity Sector Study suggest that despite the intentions enshrined in the Electricity Act of 2003, the National Electricity Policy, and various regulations, political will to allow competition in the sector is lacking. For example:

State governments wield too much political power over statutory bodies that manage generation, transmission, and distribution.

The government’s near monopoly in coal inhibits competition in electricity generation, but there is still more competition in that segment than in transmission and distribution, which are dominated by the government.

Many states have not yet enabled open access to transmission networks to increase the supply of electricity and give consumers a choice of generating units, as was mandated by the Electricity Act of 2003.

State governments continue to set and revise tariffs even though the Electricity Act mandates tariff rationalization.

States that have corporatized public-sector distribution companies and enforced modern management techniques have reduced distribution losses, have healthier balance sheets, and serve consumers much better.

Nathan India concludes that to stimulate and enable competition in the electricity sector the government needs to reform the political economy, adjusting the regulatory framework to ensure the autonomy of statutory bodies and instituting policies that facilitate open access by private players and that augment supply.